MarketTrends 05/02/2025: Negative Effects

What's happening with home price trends? See what's happening to home values in more than 400 metropolitan areas with HSH's new Home Value Tracker. Review price changes over five different time periods, or run custom time series to see what's happened during your ownership period with our MyHVT tool.

Although PCE inflation for the quarter just ended may have risen, the same calculation for March alone was far more encouraging. For that month, PCE inflation was unchanged at 0.0%; adding a zero into the 12-month trailing calculation saw annualized PCE from last April to this March fall back to a 2.3% rate, returning to a level last seen last October. For March, goods prices declined by 0.5% and service prices settled from 0.5% in February to just 0.2% for March.

Core PCE inflation was also flat in March, which helped the core measure ease back to a 2.6% annualized clip. That's as low as this Fed-preferred measure has been since last June, and core inflation falling to that level was arguably one of the factors that gave the central bank space to start cutting rates last September. Unfortunately, the good inflation news for March seems very likely to be overcome by higher costs associated with new levies, but just how much we'll need to wait to find out.

The PCE data is derived from the monthly Personal Income report from the Bureau of Economic Analysis. Personal incomes rose by 0.5% in March, lifted by a 0.5% increase in wages, but also buttressed by a 1.8% increase in proprietor's incomes, a 0.7% increase in rental income and a 0.4% gain in receipts from investment assets. Direct government transfer payments fell by 0.3% after sizable increases in both January and February, those mostly due to cost of living adjustments to Social Security and similar inflation-indexed items. Consumers managed to outspend their income a little last month, with personal spending outlays rising by 0.7%; most likely, some of the increase was advance purchasing of goods to escape expected higher prices later this year. As is to be expected, more outgo than income dinged the national savings rate, which dropped to 3.9% in March from 4.1% in April.

Want to get MarketTrends as soon as it's published on Friday? Get it via email -- subscribe here!

Manufacturing activity continued to have little traction in April. The latest reading from the Institute for Supply Management's monthly survey saw a modest improvement, with their barometer easing 0.3 points to 48.7 for the month, a little below the breakeven mark of 50. New orders also improved to a less-poor stance, rising two points to a still-soggy 47.2, while the employment gauge managed a 1.8-point increase to 46.5 for April. The only component of the survey above breakeven was the prices paid index; at 69.8, it was up mildly from March, but still indicates that a majority of manufacturers are seeing price increases in inbound materials. As more tariffs take hold, steadily high or rising price inputs seem likely to persist for some time.

At least through March, labor conditions remained solid enough, if continuing to cool a bit. That was the takeaway from the updated Job Openings and Labor Turnover Survey (JOLTS) for the period. The number of open positions continued to step lower at the end of the first quarter, declining to 7.192 million, down from a downwardly-revised 7.480 million for February (and 7.762 for January). The narrowing of open positions might be more of a concern if the number of hires fell or the rate of layoffs picked up, but those actually improved, with hires moving up to 5.411 million positions filled (the highest number since last September) while layoffs shrank to 1.558 million, the fewest since last June. As well, the number of voluntary separations ("quits") edged up, indicating somewhat more of a willingness of folks to leave jobs for better opportunities. Shrinking job openings are also the result of a low level of firing or quits, since a business doesn't need to hire if they already have someone on the job who is staying put.

Layoff announcements slowed in April compared to March. The outplacement firm of Challenger, Gray and Christmas recorded announced job cuts of 105,441 for the period, down from 275,240. While the reduction compared to March was 61.7%, a comparison against April of 2024 revealed an increase of a nearly identical amount (62.7%). As such, layoff announcements are elevated, and according to the report, only about 1% of them are tariff-related; tech and warehousing-related job reductions accounted for nearly 50% of the total last month.

Initial claims for unemployment benefits kicked a little higher in the week ending April 26, rising 18,000 to 241,000 new applications processed at unemployment offices. While not outside of a recent range, the latest figure is a bookend of sorts, as it is nearly as high as a figure from the week ending February 22. While the increase isn't yet concerning, the increase in folks receiving ongoing support may be, as an increase of 83,000 in the latest week pushed the number of continuing claims to 1.912 million, the highest figure since mid-November 2021. It may be that while not all that many folks are losing jobs, it would seem that those who have are having a tougher time securing new positions.

As far as hiring and unemployment goes, the employment situation update for April was solid enough. In the latest month, 177,000 hires took place, just slightly lower than a downwardly-revised March figure of 185,000. Despite headlines of government layoffs occurring, the unemployment rate remained at 4.2% and has been wandering between 4% and 4.2% since last May. Wage growth rose by 0.2% last month, leaving the annual increase at 3.8%; when coupled with productivity gains, the increase is pretty close to being non-inflationary. The labor force participation rate edged back up by a tenth of a percentage point to 62.6, little changed now for many months,

If HSH's weekly MarketTrends newsletter is the only way you know HSH, you need to come back and check out HSH.com from time to time. You'll find new and changing content on a regular basis, unique calculators, useful insight, articles and mortgage resources unlike anywhere else on the web.

Costs for keeping an employee on the books rose by 0.9% in the first quarter, according to the latest Employment Cost Index, the same increase as was seen in the last stanza of 2024. For the period, wages expanded by 0.8%, down 0.2% from the previous period but still quite solid. Benefits costs stepped higher, climbing by 1.2% to start 2025, the biggest bump in non-salary costs since the second quarter of 2022. Over the last 12 months, the ECI has increased by 3.6%, its coolest rate of increase in two years. While still elevated compared against pre-pandemic times, the ECI continues to slowly trend back in the right direction to help keep inflation damped.

We've known for a while that consumer psyches have been battered by the uncertainty surrounding trade and tariffs and expected knock-on effects on inflation and the broader economy. Another review of moods came this week in the Consumer Confidence Index from the Conference Board, and frankly there's not a whole lot of confidence to be seen, particularly for the future. The overall index dropped 7.9 points to land at 86.0 for April, a five-year low; current conditions eased, but only mildly, with a 0.9-point decline leaving this measure at 133.5 for the month, down a cumulative 10.5 points since January. Expectations continue to take a hit; the 12.5-point stumble to 54.4 left the outlook portion of the report at its lowest point since October 2011. With prices expected to rise, plans to buy autos declined again, and the measure of interest in buying a home dropped to a point last seen in 2015 and has only posted a handful of lower values over the last 13 years.

Based upon the available data, sales of existing homes are expected to be softer, as buying plans in the early spring homebuying season have likely been impacted by rising worries about the economic outlook added on top of affordability issues from high prices and still-high mortgage rates. These issues were reflected in the National Association of Realtors Pending Home Sales Index for March, where this measure of signed contracts to buy declined by 6.1%. We learned last week that closed sales in March slipped 5.9% (reflective of demand and contracts signed in late January and February) and March's PHSI decline suggests a sluggish outlook at best for April and into May, both part of the peak homebuying buying season.

This slowed pace of activity is also seen in requests for mortgage credit, which started April with a pop but have turned south in each of the last three weeks. The latest applications index data from the Mortgage Bankers Association captured a 4.2% decline in mortgage requests in the week ending April 25, pulled down by a 4.4% decline in applications for loans to buy homes and a 3.7% fall in those to refinance existing mortgages. Per Freddie Mac, mortgage rates rose less than a quarter percentage point from the beginning of the month through the MBA's latest survey week, but in the context of the unsettled financial market climate, that's been enough to dent demand.

Construction spending closed the first quarter with a decline. Overall outlays for construction projects fell 0.5% for that month, dragged down by a 0.4% reduction in residential projects, a 0.8% slump in non-residential spending and a 0.2% fall in public-works project outlays. Uncertain demand and uncertainty regarding cost increases may be delaying or even deterring new projects from getting underway, and if so, there's no way to know when certainty or clarity will return. As such, a sluggish pace may be all that can be expected.

At least looking backward to the first quarter, we're only seeing the effects of maneuvering before tariffs were announced, much less implemented. Since the announced tariffs were "significantly larger than anticipated" per Fed Chair Powell, so will be the effects on inflation and growth. New levies were announced in early April; April data are only just starting to be released, and we'll get a clearer view of the impacts of tariffs and associated financial market volatility as the data rolls out this month and next.

The Fed meets next week to consider how to approach all this. As long as labor market conditions hold up, the impact of tariffs on inflation will probably see the Fed stand pat for as long as it can. Should labor conditions sputter and economic activity start to settle to a point where another negative for GDP might show for the second quarter, the Fed may have no choice but to start cutting rates, risking a longer duration of higher price pressures. At least for the moment, there's little for the Fed to do but watch and wait for signs that either inflation or growth is moving in an unwanted direction.

After a very restive early-mid April, financial markets seem to have calmed to a fair degree over the last two weeks. Let's hope it lasts, as it is key to helping mortgage rates to continue to settle back again. Provided the relative quiet can continue for the next couple of days, we think that the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac will be able to post perhaps a 7-9 basis point decline next week. As is so often the case, negative effects on the economy -- even only expected ones -- can help bring down interest rates, at least somewhat.

Although there is much uncertainty and the financial markets have been volatile, we're undaunted, and offer our latest Two-Month Forecast for mortgage rates covering late April through late June.

See our 2025 Mortgage and Housing Market Outlook, covering mortgage rates, housing conditions, the Fed and lots more.

Also, for a really long-run outlook, you'll want to review "Federal Reserve Policy and Mortgage Rate Cycles".

In most areas, home prices have been rising for years. If you're curious about how much home equity you have -- or will have at a future date -- you should check out HSH's KnowEquity Tracker and Projector, our unique home equity calculation and forecasting tool.

Have you seen HSH in the news lately?

Want to comment on this Market Trends? -- send your feedback, argue with us, or just tell us what you think.

See what's happening at HSH.com -- get the latest news, advice and more! Follow us on Twitter/X.

For further Information, inquiries, or comment: Keith T. Gumbinger, Vice President

Copyright 2025, HSH® Associates, Financial Publishers. All rights reserved.